When hiring new employees, it’s sensible to seek talent with a demonstrated history of hard work and commitment. You want to build a team of people poised to help you achieve your mission and delight your clients.
Thus, it’s exciting when you land conscientious workers. But, unfortunately, it’s not enough to know your staff works diligently — you have to know what they’re working on and for how long.
This data, deemed employee utilization, is critical if your aim is profitability. Let’s review the ins and outs of the concept of utilization as it applies to a professional services business.
Simply put, employee utilization is how much of your employees’ time is spent on billable work, or work that clients pay for. In other words, it’s how much of your labor costs you’re being reimbursed for with client payments.
Employee utilization is generally expressed as a percentage. There are several variations of utilization figures that could be useful to you as a business owner or leader.
Here are three of the most common calculations:
As you can see, you won’t be able to calculate an individual or average utilization rate without knowing how much of your employees’ time is billable. To gather those numbers, you’ll need to conduct accurate time tracking, preferably using a platform that facilitates efficiency at every stage of the client relationship.
Utilization directly correlates with profits.
You pay for every minute your employees are working, whether you’re getting paid or not. You also pay for some times when they aren’t working, such as vacations and sick days. If there’s too large of a disparity between the number of hours you’re paying for and the number of hours you’re being paid, your bottom line will suffer.
Reduced profitability means reduced growth potential. Think of low utilization as a proverbial hamster wheel dynamic. Your team (the hamsters) might be working hard, but the business as a whole (the wheel) remains static.
You can shift your team’s focus from non-billable to billable work in a number of ways. Here, we’ll explore five of the most effective.
You won’t be able to shift some of your team’s time from non-billable to billable if you aren’t aware of how it’s currently allocated. As we’ve discussed, this distinction is necessary for calculating employee utilization in the first place.
Since the ratio of billable to non-billable time can change drastically across projects and as your business and team grow, it’s important to generate regular utilization reports and scour each bucket of time for opportunities to consolidate non-billable efforts.
If you haven’t already been paying close attention to resource management, there’s no better time than now to start.
It’s easy to assume you know how long a particular task takes, but you’ll likely be surprised once you start comparing estimated and actual time for everything your team does. You could be over- or underestimating actual time, and both are equally problematic.
Underestimating can lead to undiscovered scope creep and incorrect billing. Overestimating can lead to low productivity and slow business growth. In both cases, your team could be duplicating or missing tasks.
At every stage of client work, and every level of team responsibility, tracking estimated vs. actual time can bring awareness to the unnecessary loss of a few minutes here and there — which add up to valuable hours.
It can be difficult to achieve optimum utilization if your employees struggle to understand their roles. Clear assignments and explicit communication of job responsibilities can help them cut through any confusion and stick to completing their tasks.
When your workload becomes overwhelming, delineated roles and tasks can also help you determine whether you have a utilization problem or it’s time to bring on a new team member to fill a gap.
While data is essential, there can be cases in which all the reports in the world won’t be able to tell you if your employees are struggling. Maybe it looks like they’re handling their assignments just fine and your utilization is increasing, but it’s not going to be sustainable. Or, a shift in one team’s responsibilities has created a bottleneck for another, but the impact hasn’t shown up on your reports yet.
Try forecasting and preventing these dilemmas by connecting your team with leadership in regular one-on-ones. Casual check-ins can go a long way in making people feel more comfortable and encouraged, which helps them sustain a steady work pattern. These conversations are also a useful tool for identifying problems before they start digging into your profits.
It may seem counterintuitive, but studies show that taking regular breaks improves productivity. Despite what the research says, you may have a tough time watching your employees disconnect from work while they’re on the clock. But if they do it right (no social media scrolling!), they’ll get faster at checking off tedious non-billable tasks and dedicate more time to billable client work.
Tracking your utilization before and after you implement a culture change around breaks can convince you of the value — both human and monetary — of letting the brain rest.
The work required to develop accurate utilization data could, ironically, subtract from your billable time. Implement automated time tracking to make it easy for your team to paint a clear picture of where their time is going every day.